Extract from my quarterly newsletter

by Malcolm Pryor on 30/07/2013

Here is an extract from my latest quarterly newsletter, go to www.sparkdales.co.uk to order the full (free) newsletter
The basic concept of support and resistance is quite simple. Support is a price level at which previously a fall in prices has been halted. Resistance is a price level at which previously a rise in prices has been halted. A support / resistance level is more often than not a zone rather than a specific price.
The value of the concept is that, once identified, support and resistance levels can be used as both entry and exit levels for trades.
There are seven features of support and resistance which are important to bear in mind:-
1) The concept works on all timeframes
2) The longer the support / resistance has been in place the more likely it is to halt the next price movement
3) The more previous touches of the support and resistance levels the more likely the levels will halt the next price movement
4) Eventually all support and resistance levels are likely to be broken and this can then lead to powerful moves; it is therefore essential when using support and resistance to enter trades that traders protect themselves with stops in case the support / resistance levels fail
5) Small and brief breaks of support and resistance are common, therefore traders should avoid placing stops bang on the support and resistance levels
6) A false break out of a support / resistance level can lead to a powerful move in the opposite direction
7) Support once properly broken tends to become resistance; resistance once properly broken tends to become support